CLIMATE:

House panels seek to limit effect of cap and trade on nation's pocketbook

The race to write global warming legislation continues this week with two House hearings on how to help Americans cope with the higher energy costs that inevitably would result from a new U.S. climate policy.

In almost simultaneous hearings Thursday morning, the Energy and Commerce Committee and the Ways and Means Committee will study different proposals designed to help low- and moderate-income households deal with the projected price increases on energy and energy-intensive goods and services that comes from implementation of a cap-and-trade program.

President Obama and the Democrat-led Congress are trying to craft legislation this year that would set up a program requiring mandatory reductions in greenhouse gas emissions.

Government studies conclude that for a new U.S. climate law to work, it must stem the demand for carbon-based energy by increasing prices -- not exactly the most politically popular thing to do during an economic crisis that is being compared to the Great Depression.

Low and middle-income households would face a much greater economic burden from a new global warming law compared with richer Americans because they spend a larger proportion of their budgets on energy, according to testimony delivered last summer by Peter Orszag, Obama's White House budget chief who at the time was director of the Congressional Budget Office.

But that economic reality is not stopping Obama and his allies on Capitol Hill from pushing for climate legislation, in large part due to growing international demands for U.S. leadership on the issue and mounting scientific warnings about accelerated global warming.

In his budget proposal released last month, Obama spelled out the broad outlines of a cap-and-trade approach that links his signature environmental agenda item to tax relief for Americans. Under Obama's plan, the government would auction off all of the emission credits, generating at least $650 billion in cumulative government revenue by 2019.

The president's budget would then dedicate $15 billion per year to fund the "clean" energy technologies needed to transform away from a fossil fuel-based economy. And it also would set aside $65 billion of the auction revenue for tax cuts to middle-income Americans. Additional auction proceeds would also "be used to further compensate the public," the White House said.

Lead authors of this year's House and Senate climate legislation have not said yet how they will respond to Obama's call for a 100 percent auction or the president's ideas for where to send such revenue.

Last year, House Energy and Environment Subcommittee Chairman Ed Markey (D-Mass.) wrote a cap-and-trade plan that would have sold 94 percent of the program's allowances with the proceeds directed toward many of the same concepts supported by Obama, including tax cuts for low- and middle-income Americans, energy technology research, energy efficiency and adaptation.

Senate cap-and-trade legislation debated last summer on the floor also tried to help low- and middle-income Americans with tax credits. Sponsors of that bill estimated $911 billion over a roughly 40-year period for consumers to help with their energy costs and also to fund energy efficiency projects.

'The greatest political challenge'

CBO estimates from last year's Senate climate debate suggest the permits from a cap-and-trade system could raise around $50 billion in the initial years of its operation and up to $300 billion a year by 2020.

Those are funds that lawmakers face the perilous task of trying to divide up among a raft of competing interests, from low-carbon technology deployment to wildlife adaptation and tax relief for low- and middle-income Americans.

Powerful interests are lined up behind many of the different ideas for how to distribute the allowances, let alone what to do with the new government revenue if it did go with an auction.

"The enormous value of the allowances makes this high-stakes issue perhaps the greatest political challenge in designing climate policy," according to a July 2008 report by Resources for the Future, a nonpartisan think tank.

For starters, electric utility companies insist that they should be given emission credits for free to help them compensate shareholders for the higher operation costs. Power plants produce about 40 percent of U.S. greenhouse emissions.

Supporters for the free allowance approach include the Edison Electric Institute and Rep. Rick Boucher (D-Va.), the former chairman of the House subcommittee with jurisdiction over the climate bill.

In an interview, Boucher recalled Congress' decision in the 1990 Clean Air Act Amendments to give power plants free credits for sulfur dioxide. "My preference is we follow the process that we know works, and this is the free allocation process," he said.

To help protect consumers, the electric utility companies now support the allowances being given to retail local distribution companies that deliver electricity to households -- an approach long advocated by the National Commission on Energy Policy, the California Market Advisory Committee and the Natural Resources Defense Council.

But the utility companies face growing opposition to getting any of their credits for free.

Advocates for a 100 percent auction recall that they were often ridiculed as the climate policy debate lurched through the Bush administration. They now claim traction spawned in large part by Obama, who advocated for their approach during last year's presidential campaign.

"I feel like the pendulum is swinging very, very fast," said Stephen Smith, a 100 percent auction supporter and the executive director of the Southern Alliance for Clean Energy.

In testimony last week before the House Budget Committee, Orszag warned of corporate windfall profits should Congress write cap-and-trade legislation without an auction.

"If you didn't auction the permits it would represent the largest corporate welfare program that has even been enacted in the history of the United States," Orszag said. "All of the evidence suggests that what would occur is that corporate profits would increase by approximately the value of the permits."

Even House Energy and Commerce Committee ranking member Joe Barton (R-Texas), a longstanding skeptic of global warming science, acknowledged that he sees the reasoning behind a complete auction of the emission credits.

"If you're going to do it, I support the auction because I think that's more equitable," Barton said last week in an interview. "The whole point of it is to try to reduce the amount of what it is that's being auctioned. And the way to do that is to charge for it, and not give it away."

What to do with the revenue?

When it comes to helping low- and middle-income Americans, supporters for a 100 percent auction are divided about what to do with the revenue.

Peter Barnes, an environmental entrepreneur and the founder of the Working Assets long-distance telephone service, calls for a "cap and dividend" approach. Under Barnes' system, all of the auction revenue would be returned to U.S. households on a per capita basis. Barnes has likened his idea to the Alaska Permanent Fund -- the program that sends residents annual checks from oil and gas proceeds.

But critics of Barnes' plan warn that it would require use of all 100 percent of the emission allowances, a prospect unlikely to occur given competing demands for the credits. And it also would come with new administrative burdens, especially for people without bank accounts or who do not file income taxes.

Another high-profile proposal to offset higher energy costs comes from the liberal Center on Budget and Policy Priorities, a Washington-based group that projects a 15 percent cut in greenhouse gas emissions equals about a $750 increase every year in energy bills per household.

To compensate about 60 million of the poorest Americans, the center advocates returning about 14 percent of the cap and trade's auction funds through direct deposits onto electronic debit cards similar to what states now use for food stamps and other low-income assistance programs. "The rebates would equal the loss in purchasing power" for a family of three making below $27,500, the group said in Feb. 19 white paper.

For other low- and middle-income Americans, the center proposes a "climate tax credit" based on the size of a family, with increases over time as the emissions cap get stronger and energy prices go up higher.

Overall, the Center on Budget and Policy Priorities' plan would use about 55 percent of the total allowances. That leaves 45 percent for other needs, including alternative energy, conservation, energy efficiency and adaptation.

The center also takes into account a CBO projection that 25 percent of the auction proceeds will need to be kept in the Treasury to make sure the climate program does not increase the federal deficit as federal revenue shrinks from other areas.

Fuzzy turf lines

Both House committees holding hearings Thursday are planning to draft climate legislation by Memorial Day, though it is unclear exactly where the lines will be drawn in terms of which panel takes on which set of issues.

Energy and Commerce Chairman Henry Waxman (D-Calif.) has more pieces of a climate bill under his panel's jurisdiction than Ways and Means Chairman Charles Rangel (D-N.Y.), said Rep. Lloyd Doggett (D-Texas), a senior member on Rangel's panel.

But Doggett added, "We believe it's the mechanics for raising revenue and allocation of revenue that fits in our committee."

Waxman and Rangel have pledged to work together when it comes to bill writing, a position echoed by many of the Democrats on the two committees. "I think the obstacles are so great and so many that this is not the time for any kind of differences over turf," Doggett said. "It's a time to work together and come together."

Several other House committees have also expressed interest in the climate bill as it proceeds to a first-ever floor vote later this year, including the Agriculture, Appropriations, Banking, Foreign Relations and Natural Resources committees.

"We're going to want to know how that's going to work," Rep. Norm Dicks (D-Wash.), the chairman of the House Interior and Environment Appropriations Subcommittee, said last week. "We'll definitely want to be involved in that."

Of course, the political obstacles that House Democrats face in crafting a successful climate bill go well beyond jurisdiction. Regional, racial and other demographic issues are guaranteed to surface as the global warming debate unfolds, forcing sponsors to take into account the economic implications of a new climate program that mandates emission cuts over the next several decades.

"People don't feed families over a generation," said Rep. Artur Davis (D-Ala.), a member of the moderate New Democrat Coalition. "People don't feed their families based on a commensurate job rate in California. They feed their families based on their job and the next paycheck. So I think we'll be very sensitive to those concerns."

Energy and Commerce schedule: The Energy and Environment Subcommittee hearing is Thursday, March 12, at 9:30 a.m. in 2322 Rayburn.

Ways and Means schedule: The committee hearing is Thursday, March 12, at 10 a.m. in B-318 Rayburn.

Witnesses: TBA for both hearings.

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